Southwest Airlines 2012 Annual Report Download - page 67

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increased 7.3 percent on a dollar basis compared to 2010. Approximately 66 percent of this increase was due to
the amortization associated with the intangible assets recognized upon the acquisition of AirTran, such as
customer relationships, trademarks, slots, domain name, and non-compete agreements, and approximately
23 percent was due to large projects that have been placed into service, such as the Company’s implementation of
Southwest’s All-New Rapid Rewards frequent flyer program. On a per-ASM basis, consolidated Depreciation
and amortization expense decreased by 7.8 percent compared to 2010, primarily due to the majority of AirTran’s
fleet as of December 31, 2011 being on operating leases.
On a consolidated basis for 2011, the Company incurred $134 million of acquisition and integration costs
related to the acquisition of AirTran. These costs primarily consisted of financial advisory fees and consulting,
severance, technology, and facility integration expenses. See Note 2 to the Consolidated Financial Statements.
Consolidated Other operating expense for 2011 increased by $461 million, or 32.5 percent, compared to
2010, of which approximately $250 million was due to the inclusion of AirTran results following the May 2,
2011 acquisition date. Excluding the results of AirTran, Other operating expenses for 2011 increased
14.9 percent on a dollar basis compared to 2010. Approximately 20 percent of this increase was a result of
revenue-related costs (such as credit card processing fees) associated with an increase in Passenger revenues,
approximately 17 percent was due to technology and consulting costs associated with completed and ongoing
projects, and approximately 8 percent was a result of a $17 million asset impairment related to the Company’s
decision not to equip its Classic aircraft with RNP capabilities. On a consolidated basis, Other operating expenses
per ASM for 2011 increased 7.6 percent compared to 2010. Approximately 31 percent of the increase per ASM
was a result of revenue-related costs and 16 percent was due to technology and consulting costs associated with
projects.
Other
Consolidated Other expenses (income) include interest expense, capitalized interest, interest income, and
other gains and losses. Consolidated Interest expense for 2011 increased by $27 million, or 16.2 percent,
compared to 2010. The additional debt held by the Company in connection with the AirTran acquisition resulted
in $26 million additional interest expense for 2011. See Note 2 to the Consolidated Financial Statements.
Consolidated Capitalized interest for 2011 decreased by $6 million, or 33.3 percent, compared to 2010,
primarily due to a decrease in average progress payment balances for scheduled future aircraft deliveries.
Consolidated Interest income for 2011 decreased by $2 million, or 16.7 percent, compared to 2010,
primarily due to lower rates earned on invested cash and short-term investments.
Consolidated Other (gains) losses, net, primarily includes amounts recorded as a result of the Company’s
hedging activities. See Note 10 to the Consolidated Financial Statements for further information on the
Company’s hedging activities. The following table displays the components of Other (gains) losses, net, for the
years ended December 31, 2011 and 2010:
Year ended December 31,
(in millions) 2011 2010
Mark-to-market impact from fuel contracts settling in future periods . . $ 21 $ (21)
Ineffectiveness from fuel hedges settling in future periods ........... 33 (11)
Realized ineffectiveness and mark-to-market (gains) or losses ........ 35 (1)
Premium cost of fuel contracts ................................ 107 134
Other ..................................................... 2 5
$ 198 $ 106
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